Lessons for outsourcers
The key to successful outsourcing
More and more businesses try their hand at outsourcing their IT services, with varying results. The results from our Outsourcing Performance® study have shown that a number of crucial points determine the success of the outsourcing endeavour. Firstly: aiming at cost savings alone almost always leads to disappointment. A hard lesson, especially because we live in times when costs simply have to be reduced even more. At the same time, there’s no escaping the digital future: less IT is not an option. What should you do?
How can you ensure successful outsourcing? We’ve outlined the main success factors.
It’s about the costs, not the price
Organisations outsource their IT services in an effort to save money. Nothing wrong with that. But bear in mind that a low price is only possible if the quality of the delivery processes is high. In the outsourcing process, the service provider is to some extent dependent on his client. You could, for example, agree on a low price per server, but if there is no limit to the total number of servers, then the client will be paying the price. True savings are the result of decisions primarily aimed at smarter operation and cooperation.
Transformations must be visible and tangible
The structural reduction and avoidance of costs requires transformation. And it is precisely this phase that rarely goes according to plan. There is not enough incentive on either the outsourcer or service provider side to effect the required change. From day one, outsourcers enjoy a low price based on a contract in which the transformation costs are spread out across and factored into other charges. For service providers, it is more lucrative in the short term to leave the current situation unchanged and to concentrate on earnings from the out of scope. Too many deals can get bogged down in a lengthy transformation. No pain, no gain – but this period can best be kept as brief as possible. That is why it is important to implement the programme from both sides with military timing and precision.
Multi-vendor outsourcing requires a transparent playing field
Many organisations outsource to more than one provider. Increasingly, parties tend to deal with one another in a chain of operations and are dependent on one another for the end result. There should be no doubt that if an organisation chooses for a fixed group of service providers, they do not compete with one another for more business. The competition consists of players outside this group. The core group should receive an increasingly large slice of the pie – based on performance, of course. This leads to commitment. It is also important to come to an agreement beforehand about the process, preferably on the basis of an industry process framework, and the tooling implemented within the operation. This helps establish a reference framework. Many partnership problems can be traced back to the lack of such a framework.
Invest in effective steering of IT, both internally and externally
The outsourcing of IT doesn’t mean you can stop thinking about IT altogether. To an increasing extent, professional success goes hand-in-hand with good vision on and implementation of technology. Outwardly, it is therefore not a good idea to place your fate in the hands of an external party. And within the organisation, IT is too important for the business to simply do it ‘on the side’.
When thinking about outsourcing, it is therefore important to have a firm grip on the execution of the contract. Steering enables the organisation to fulfil its role as commissioning party properly, a factor that should not be underestimated. It takes time and effort – and often a bit of experimenting – to find the right balance between all parties and build up a relationship. The focus is often on technology, but the ultimate success depends on the quality of the relationship.
Reserve space for innovation
Two things are certain when you sign an outsourcing contract for IT activities:
- You know that the world will change during the contract;
- You know that the future will bring IT solutions that are better and less expensive than those of today.
So there has to be room for change, for renewal. Where both the outsourcer and the service provider will have to make choices and say goodbye to the old. This is no easy task: an outsourcer has to be willing to give up old principles and methods, while service providers will sometimes have to give up turnover that had been set out in the contract.
If costs are transparent and new savings are shared in addition to the delivery margin, both parties would benefit from forgoing their former achievements. Innovation results in not only lower costs, but also other benefits on the business side.
The desire to actively cooperate
Recent years have shown us the ineffectiveness of too many rules and SLAs, the setting up of dashboards with a plethora of KPIs. Rules you can evade; principles not. That is why it is of utmost importance that your objectives as outsourcer are clear. Consistent translations of the company objectives in a sourcing strategy are still too few and far between. Without this translation, there is a lack of clear reference points to turn the outsourcing into a success. For example, because it isn’t clear who bears responsibility for a specific objective and which competencies are essential for the corporate strategy in the coming years.
Outsourcing necessitates the making of decisions where all parties should move together to achieve the desired results. Henry Ford summarised it beautifully: “Coming together is a beginning. Staying together is progress. Working together is success.”